Australian Dollar Down Late As RBA Keeps Rate Cut Door Open

The Australian dollar was lower Tuesday after the Reserve Bank of Australia told markets again there is scope to cut interest rates further if the economy begins to stumble.

But the modest decline came despite news from Greece that European finance ministers had finally bolted together a rescue package for the debt-ridden country.

Marathon talks in Athens secured a new EUR130 billion (US$171.9 billion) bailout and debt-restructuring deal for Greece, supported by a target to slash the country's debt-to-GDP ratio of 120% by 2020.

The outcome satisfied markets pushing the euro higher. But Arab Bank senior currency trader David Scutt said the result was largely "baked in" to market expectations.

The focus will now switch to the implementation of the austerity measures that underpin the Greek funding agreements. Deeply unpopular, the austerity measures could be watered down as the country will hold elections around April.

"Whether Greece can cope with severe austerity and continue to meet the conditions of its bailout remains to be seen," said Alex Stanley strategist at Commonwealth Bank of Australia.

Still, for now it looks likely that Greece will be able to meet its obligation for bond redemption scheduled for mid-March, which removes a major fear for markets globally.

Sean Callow, senior currency strategist at Westpac, said there are also nagging questions about the next round of bank liquidity measures set to be unveiled before the end of February in Europe.

Earlier, the Reserve Bank of Australia published minutes of its Feb. 7 policy meeting, keeping the door open to further cuts in interest rates if needed.

Economists generally expect the RBA will keep its powder dry at least until May when it will have a view inflation data for the first quarter.

"If demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy," the RBA said in the minutes.

At 0540 GMT, the Australian dollar was trading at US$1.0725, down from US$1.0770 late Monday. Against the Japanese yen, the Australian currency changed hands at Y85.49, down from Y85.63 late Monday.